New Israeli Settlement Plan Rankles U.S.

The United States and Israel remain very publicly at odds tonight over a plan for new Jewish settlements in East Jerusalem. As CBS News correspondent Mark Phillips reports, the clash involves not just the policy itself, but the who, what, where, and when of how it was announced.

The Israeli cabinet met in Jerusalem Sunday. At the top of the agenda: damage control on the damage done to relations between Israel and its greatest ally and benefactor - the United States.

"We don't want clearly to insult the American government nor the vice president of America," said Israeli President Shimon Peres.

But "insult" is exactly the word that was used when Vice President Joe Biden was in Israel this past week trying once again to get talks started between the Israelis and the Palestinians.

While the vice president was building the delicate diplomatic house of cards in the hope of getting the two sides to even talk about talking, the Israelis drove a bulldozer through his efforts by announcing they'd build 1,600 new homes on the disputed land of East Jerusalem - land Israel has annexed, but which the Palestinians see as their future capital.

The Israelis later called the timing of the announcement an accident, but the damage had been done.

It was insulting not just to the vice president, who certainly didn't deserve that … but it was an insult to the United States," Secretary of State Hillary Clinton said after the incident.

Relations between a right wing Israeli prime minister, Benjamin Netanyahu, and the Obama administration have been strained from the start. And Israeli settlement construction on occupied Palestinian land is at heart of the problem.

Only lately has the U.S. begun to reinvest in the Israeli-Palestinian peace process.

"We just now have started proximity talks - that is, shuttle diplomacy - between the Palestinians and the Israelis and for this announcement to come at that time was very, very destructive," White House senior advisor David Axelrod said Sunday on NBC's "Meet the Press."

Israel's clumsy announcement - accidental or not - moves that diplomacy back to square one.